A pump has failed in a facility that will be completely replaced in 5 years. The new pump costs…

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QUESTION 1:

a. A pump has failed in a facility that will be completely replaced in 5 years. The new

pump costs $6,000 and the annual O&M costs will be $1,200 from EOY1 to EOY4. It

is anticipated that the pump will be sold for $1,500 at the end of the fifth year. Use

an interest rate of 12% to calculate the present worth of this new pump

investment. [3 points]

b. Allen bought a new automobile with a $5,000 up-front payment and a loan with 12%

annual interest, compounded monthly. The loan payments are $500 each month and

he should pay off the entire loan at the end of 60th months.

i. Calculate the present worth of this car. [2 points]

ii. Determine how much has been paid after the 40th payment. [2 points]

c. The Better-bit Construction Company has a series of equal, quarterly cash flows of

$1,200, starting with a cash flow on January 1, 2013 and ending on July 1, 2016.

Using an interest rate of 16% and quarterly compounding, determine the single

amount on January 1, 2013 equivalent to the total cash flow. [2 points]

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